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Who pays when startup employees keep their equity?

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Re: Who pays when startup employees keep their equity?

#121

Post by jsprogrammer »

mikeash wrote: post #86
shon wrote: post #64

Earlier quoted context omitted.

Of course I have seen people lose. I've personally lost on options as well. I didn't make the assertion that you can't lose. With options, you are betting that the company will not fail and that it will become much more valuable. Both are statistically unlikely. You are also betting that you won't leave or be otherwise eliminated before the exit. Mainly I'm framing this in comparison to additional salary which is als…

How much is needed for something to qualify as "significant wealth"? You seem to be dismissing differences in salary as unimportant, so it's fine to take a pay cut in exchange for even a small chance at significant wealth, because that's all that matters. Let's say the salary difference is $50,000/year. Over 20 years, that's maybe half a million dollars, post tax, that you gain by ditching options. Maybe that's not s…

You are assuming the company sticks around you with that salary for 20 years, but that the options never become valuable.

It would take incredible foresight for a company to correctly manage to pull off such a feat.

Re: Who pays when startup employees keep their equity?

#122

Post by Retric »

rhizome wrote: post #114
Retric wrote: post #92

Earlier quoted context omitted.

You can still do remote work from a cheap location, or stay and have FU money. Giving up 500k in salary for a chance to make 500k in stock is a terrible bet. Alternatively, only save up 100k in 10 years, go to Vegas and bet it all at slightly negative odds. You can set things up for a 20% chance of getting ~500k which is better odds than many startups while still having more day to day money.

You can still do remote work from a cheap location, or stay and have FU money. Do they have good schools in $cheap_location?

There are a very large number of cheap locations with good schools. Especially when you include private schools.

Re: Who pays when startup employees keep their equity?

#123

Post by mikeash »

jsprogrammer wrote: post #121
mikeash wrote: post #86

Earlier quoted context omitted.

How much is needed for something to qualify as "significant wealth"? You seem to be dismissing differences in salary as unimportant, so it's fine to take a pay cut in exchange for even a small chance at significant wealth, because that's all that matters. Let's say the salary difference is $50,000/year. Over 20 years, that's maybe half a million dollars, post tax, that you gain by ditching options. Maybe that's not s…

You are assuming the company sticks around you with that salary for 20 years, but that the options never become valuable. It would take incredible foresight for a company to correctly manage to pull off such a feat.

I'm merely assuming that your working life is at least that long, and that the salary/options tradeoff is something you can make throughout, as you change jobs.

If you go hardcore for options, then you might take every job with a reduced salary and a chance of striking it rich. If you're totally against then you might take every job with a more established company (or unconventional startup) that pays better. The tradeoff of potential riches versus more certain earnings is as I described.

Re: Who pays when startup employees keep their equity?

#124

Post by a_small_island »

calcsam wrote: post #56

The barrier to entry of this stock option tweak: it requires an informed populace, ie, us. If you are a founder with reasonable engineer cred and announce differentiated stock option terms, ie, Adam D' Angelo at Quora, there's a reasonable chance that engineers considering joining your company will be encouraged by your effort on this. If you're someone else, and your company offers this, many experienced engineers,…

>"If you are a founder with reasonable engineer cred"

Can you expand on this? Are you of the mind that engineers should only trust other engineers?

Re: Who pays when startup employees keep their equity?

#125

Post by bradleyjg »

shostack wrote: post #116
bradleyjg wrote: post #83

Earlier quoted context omitted.

The finance industry has its own risks. It's a tournament type structure where as long as you stay in the tournament you are doing very well, but if you fall out you can end up doing pretty poorly. Whereas the tech industry, at least for the last several years, has offered a soft landing to many of those that choose to enter the startup lottery and lost. Probably the least risky choice among high paying jobs that exi…

Can you elaborate on the "tournament type structure?" Are you referring to those at a high enough level where the expectation is that they source deals? If so, then yes, because at that point it is sales, and if you don't deliver new business, you bomb out, same as any other sales job. If you are low enough level though, that isn't necessarily a concern since you aren't expected to source deals.

In the investment banking industry you can't be a lifetime associate, it is up or out. If you make it to managing director you are doing very very well for yourself, but you still don't have any job security. That big pay packet is a ripe target when fortunes turn and the bank needs to cut costs. And if you get let go as an MD it is unlikely you will find another bank to take you in (the usual thing where it is harder to find a job without a job is even more so in the financial world.)

There's also a technical meaning to tournament theory that helps explain why firms in some industries are so structured. You can read more about that here: http://www.econ.ucsb.edu/~pjkuhn/Ec250A/Slides/Tournaments&T...

Re: Who pays when startup employees keep their equity?

#126

Post by mathgeek »

lbn wrote: post #98
Retric wrote: post #92

Earlier quoted context omitted.

You can still do remote work from a cheap location, or stay and have FU money. Giving up 500k in salary for a chance to make 500k in stock is a terrible bet. Alternatively, only save up 100k in 10 years, go to Vegas and bet it all at slightly negative odds. You can set things up for a 20% chance of getting ~500k which is better odds than many startups while still having more day to day money.

> You can still do remote work from a cheap location Wouldn't the employer insist on paying in the local salary range?

In my experience, this is not the case.

Re: Who pays when startup employees keep their equity?

#127

Post by mathgeek »

Retric wrote: post #122
rhizome wrote: post #114

Earlier quoted context omitted.

You can still do remote work from a cheap location, or stay and have FU money. Do they have good schools in $cheap_location?

There are a very large number of cheap locations with good schools. Especially when you include private schools.

Private schools tend to increase the "cheap" part quite a bit.

Re: Who pays when startup employees keep their equity?

#128

Post by Retric »

dpark wrote: post #118
Retric wrote: post #68

Earlier quoted context omitted.

A single person making 100k+ has a ~90% chance of saving enough in 10 years to retire in a cheap location. That is a life changing amount of money.

I'm not sure why you think single is a positive if you're trying to save. It's far more cost effective to be married to another high-income earner. Living in a cheap location is also not everyone's dream. It would be life changing for me to retire to Costa Rica, but it would not be a positive change. I live in a pretty expensive city (Seattle) because I like it here.

If X, says nothing about if not X. Dual income no kids @ 200+k can be a great way to save a lot of money. But, you have far less control over your spouses spending and willingness to relocate.

Also, even if you don't move having 500+k / person in the bank is life changing. The median bay area house is 635,000$ which becomes affordable while saving money. Dual income with a 1+ Million down payment and you can actually buy a nice place.

Re: Who pays when startup employees keep their equity?

#129

Post by hobbyjogger »

chollida1 wrote: post #3

There was a PE firm that came around about 4-5 years ago trying to raise money on this very premise. Their thesis was that - startups would remain private longer. - employee's lost their options when they leave - longer periods to go public means more employees return options to the pool which means employee option pools can be smaller - longer private periods leads to more rounds raised which benefits investors over…

Seems like a pretty good investment thesis (especially if they were truly ahead of the curve here).

Except I doubt the last bullet is accurate. I'd be very surprised to find that even 10% of tech IPOs have significant preferred investors not subject to a lock-up. Underwriters really, really don't like holders (even small ones, but especially big ones) being able to sell right off the bat. And if the market is flooded with VC investors dumping shares just after the offering, then there may well be no "pop" to participate in.

Re: Who pays when startup employees keep their equity?

#130

Post by [deleted] »

landryraccoon wrote: post #48
bradleyjg wrote: post #42

Earlier quoted context omitted.

Going the cash route has a higher expected value but a lower variance. Different people have different attitudes towards risk.

I think you mean lower expected value, no? The way you put it cash is strictly better in every way than options - both higher expectation and lower risk. According to you there's no upside to options relative to cash.

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